Can the IRS Levy My Business Account for Personal Taxes?

The IRS has broad authority to collect unpaid taxes, which can leave business owners wondering if their company’s funds are at risk for personal tax debts. The answer depends on factors such as the business’s legal structure and financial management.

Understanding when the IRS might levy a business account for personal tax liabilities is crucial for protecting assets and avoiding financial strain.

Legal Distinctions Between Business and Personal Obligations

The IRS generally treats business and personal tax liabilities separately, but the level of protection varies based on business structure and financial practices. Corporations and multi-member LLCs are typically considered separate legal entities, shielding their assets from an owner’s personal tax debts. However, if the IRS determines that a business is being used to hide personal assets or evade taxes, it may apply legal doctrines such as “alter ego” or “piercing the corporate veil” to seize business funds.

If a company fails to remit payroll taxes, the IRS can pursue both the business and responsible individuals under the Trust Fund Recovery Penalty (TFRP) provisions of the Internal Revenue Code 6672. In these cases, the IRS does not need to prove the business is an extension of the owner—it can directly levy business assets.

Ownership Structures

A business’s legal structure influences whether the IRS can levy its bank account for an owner’s personal tax debt. Some structures provide strong separation between personal and business assets, while others offer little to no distinction.

Sole Proprietorship

A sole proprietorship is not a separate legal entity from its owner. The IRS treats all business income, expenses, and liabilities as the owner’s personal responsibility. If the owner has unpaid personal taxes, the IRS can levy the business’s bank account just as it would a personal checking account.

Since sole proprietors report business income on Schedule C of their personal tax return, there is no legal distinction between personal and business funds. The IRS can seize money from any account under the owner’s Social Security number, including those used for business. To reduce risk, sole proprietors should maintain clear financial records and set aside funds for tax liabilities.

Single-Member LLC

A single-member limited liability company (LLC) offers some legal separation between the owner and the business, but this protection is limited when it comes to IRS levies. By default, the IRS treats a single-member LLC as a “disregarded entity” for tax purposes, meaning its income and expenses are reported on the owner’s personal tax return. Because of this, the IRS can often levy the LLC’s bank account to satisfy the owner’s personal tax debt.

If the LLC elects to be taxed as an S corporation or C corporation, the IRS may recognize it as a separate entity. In such cases, the agency would need to prove that the LLC is merely an extension of the owner—such as by showing that business and personal funds are mixed—before levying its account. Business owners seeking stronger protection should maintain separate financial records and avoid using business funds for personal expenses.

Partnerships

A partnership, whether general or limited, is a separate legal entity, but the IRS can still pursue business assets for personal tax debts under certain conditions. In a general partnership, each partner is personally liable for the business’s debts, and the IRS can levy a partner’s share of distributions to satisfy personal tax obligations. If a partner can withdraw funds from the business account, the IRS may also attempt to levy those funds.

For limited partnerships (LPs) and limited liability partnerships (LLPs), the level of protection depends on the partner’s role. General partners in an LP remain personally liable for business debts, while limited partners typically have liability protection. However, if a limited partner owes personal taxes, the IRS can seize any distributions they receive. Partnerships should document ownership interests clearly and ensure distributions follow the partnership agreement.

Corporations

A corporation, whether an S corporation or a C corporation, is a distinct legal entity. In most cases, the IRS cannot levy a corporation’s bank account to satisfy an owner’s personal tax debt. Shareholders are not personally liable for corporate debts, and company funds are generally protected.

However, if the IRS can demonstrate that the corporation is being used to shield personal assets—such as by showing that the owner is using corporate funds for personal expenses or failing to follow corporate formalities—it may attempt to “pierce the corporate veil” and levy business assets. Additionally, if the corporation owes payroll taxes, the IRS can hold responsible individuals personally liable under the Trust Fund Recovery Penalty. To maintain protection, corporate owners should keep business and personal finances separate and follow corporate governance rules.

Commingling Funds

Mixing personal and business finances can create significant problems, especially when dealing with the IRS. When funds are not clearly separated, it becomes difficult to prove which assets belong to the business and which are personal. This lack of clarity can make a business more vulnerable to IRS levies, as the agency may argue that the company is merely an extension of the owner.

Bank statements, accounting records, and financial transactions all play a role in determining whether commingling has occurred. If personal expenses are routinely paid from a business account or business income is deposited into a personal account, the IRS may view the business as lacking independence. Even using a business credit card for personal purchases without proper reimbursement can weaken the argument that the company operates separately from the owner.

Maintaining clear financial boundaries is essential. Proper record-keeping, such as maintaining separate bank accounts and using dedicated accounting software, helps establish the business as a legitimate entity. If funds must be moved, it should be done through documented transactions, such as owner distributions or loans with formal agreements.

When the IRS May Seek Business Assets

The IRS typically pursues a taxpayer’s personal assets first, but under certain circumstances, it may extend its reach to business accounts. If a taxpayer has significant unpaid liabilities and personal assets are insufficient, the agency may look for alternative sources of collection.

One situation that can trigger an IRS levy on business assets is when the taxpayer is using corporate or LLC accounts for personal expenses without proper documentation. This can create an argument that the funds are effectively personal, making them subject to collection. Additionally, if a business account is held as a joint account with the taxpayer or if the taxpayer has signatory authority over an account that is not strictly used for business operations, the IRS may assert a claim to those funds.

The IRS also scrutinizes asset transfers that appear to be attempts to shield personal wealth. Under fraudulent conveyance statutes, the agency can challenge transfers made to evade tax debts and initiate legal proceedings to reverse them.

Navigating Levy Notices

When the IRS decides to levy a business account due to an owner’s personal tax debt, it must follow specific legal procedures. The process begins with a Notice and Demand for Payment (Letter 1058 or CP504), informing the taxpayer of the outstanding balance and requesting immediate payment. If the debt remains unresolved, the IRS issues a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (LT11 or Letter 3172). This provides the taxpayer with 30 days to request a Collection Due Process (CDP) hearing with the IRS Office of Appeals. Failing to respond allows the IRS to proceed with levying bank accounts, garnishing wages, or seizing other assets.

If a levy is issued, the IRS sends a Notice of Levy (Form 668-A or 668-W) to the financial institution holding the business account. Banks must freeze the funds for 21 days before remitting them to the IRS, giving the taxpayer a final opportunity to resolve the issue. During this period, the business owner can negotiate a payment plan, submit an Offer in Compromise (OIC), or demonstrate financial hardship to request a levy release. If the levy threatens business operations—such as preventing payroll from being met—the IRS may consider a hardship-based release. Seeking professional assistance from a tax attorney or enrolled agent can improve the chances of successfully navigating this process.